HONG KONG (Bloomberg)—AIA Group Ltd., the third-largest Asian insurer by market value, said full-year profit rose 54% on increased policy sales and investments.

Net income advanced to $2.7 billion, or 22 cents a share, in the year ended Nov. 30, from $1.75 billion, or 15 cents, a year earlier, it said in a statement of its maiden annual results after Hong Kong's largest initial public offering. The earnings beat the average estimate of $2.02 billion by nine analysts surveyed by Bloomberg News. AIA forecast profit of as much as $2.3 billion in its IPO prospectus.

“The numbers mean so far they've basically met investor expectations,” said Hao Kang, who manages the equivalent of about $228 million at ICBC Credit Suisse Asset Management Co. in Beijing and doesn't own the shares. “We're looking to hear from the management today to see if they're confident enough about the future, and that will help give investors a clearer indication about the whole market going forward.” Mr. Hao has been trimming holdings of Chinese insurers.

AIA Chief Executive Officer Mark Tucker, 53, is trying to rebuild a business hurt by troubles at bailed-out parent American International Group Inc. since 2008 and uncertainties during the attempted takeover by Prudential P.L.C. last year. The life insurer has lost market share and seen declines in agent productivity and new policy sales.

‘Challenging year'

“It was a challenging year in many different ways,” Mr. Tucker said in an interview with Bloomberg Television Friday in Hong Kong. The results “demonstrated incredible resilience of the business and the people.” The company is sustaining recovery momentum in the first quarter, after seeing a pickup in the fourth, he later told a press conference.

Thursday's closing price valued AIA at about $32.6 billion, or about 1.3 times its embedded value last year.

Strengthening Asian currencies helped boost total weighted premium income of the insurer that reports results in U.S. dollars by 12% to $13 billion, according to the statement to the Hong Kong stock exchange. Without the exchange effect, the number would have increased by 5%.

Strengthening currencies

Currencies in the markets AIA operates appreciated an average 3.7% in the second half, Credit Suisse Group A.G. analyst Arjan van Veen wrote in a Feb. 21 report. Nine of the 10 most-actively traded currencies in Asia excluding Japan rose against the dollar in the past year, according to data compiled by Bloomberg. The Hong Kong currency is pegged to the dollar.

AIA said it won't pay a dividend for 2010. The company plans to announce its first payout in July, Mr. Tucker said at the briefing in Hong Kong.

AIA's total value of new business increased 22% to $667 million over 2009, the statement said. The growth was particularly strong in the fourth quarter as AIA's IPO boosted confidence, it said.

The results showed a “recovery is well under way with more to come,” Mr. Tucker said in a conference call with journalists Friday.

The measure of the profitability of new policies was about 4% of AIA's value of in-force policies in the first half of 2010, compared with 16% for both Prudential's Asian operations and China Life Insurance Co., Goldman Sachs Group Inc. analysts Roy Ramos and Mancy Sun said in a Jan. 15 report.

Investment-linked products

Morgan Stanley analysts Ben Lin and Christy He said a recovery to pre-crisis new business levels may not happen until 2013, in a December research note. AIA's value of new business was $968 million in 2008, the analysts wrote.

AIA's investment income excluding that from investment-linked products jumped 14% to $3.5 billion last year as the company reduced cash holdings in favor of local-currency debt and stocks.

AIA increased the amount of policyholders and shareholders' assets invested in stocks to 11.7% last year from 8.2% in 2009, it said the statement. The stock indexes of markets AIA operated in rose a weighted average 19% in the second half, Credit Suisse said in the Feb. 21 note.

The embedded value expanded 18% to $24.7 billion from a year earlier, according to the statement. Embedded value, an estimate of the economic value of life insurance business using actuarial and investment assumptions, is used to value life insurers.

Valuation

Citigroup Inc. and Morgan Stanley estimated Prudential to be trading at 1.1 times to 1.15 times last year's embedded value. China Life, the nation's largest insurer, is valued at 2.1 times to 2.4 times, according to estimates of the two and CLSA Asia-Pacific Markets. Prudential and China Life have yet to report 2010 earnings.

Prudential offered a year ago to buy AIA for $35.5 billion, a price tag that the U.K. insurer's shareholders balked at. The deal collapsed in June when AIG's board rejected Prudential's reduced bid of $30.4 billion, opting to sell shares in an IPO of the unit to help repay its $182.3 billion government bailout.

AIG sold a 67% stake in Hong Kong-based AIA's $20.4 billion IPO in October, cutting its stake to 33%. The New York-based insurer posted its first profit in three quarters yesterday on gains from divestitures including the majority stake it sold in AIA.

Management reshuffle

Mr. Tucker, hired in July to run AIA, built the Asian operations of Prudential over 15 years before a four-year stint as group CEO of the London-based insurer through 2009.

He has reshuffled AIA’s senior management, appointing three new regional managing directors, a new chief financial officer and new group chief distribution officer, including at least three former Prudential executives.

AIA, with one of the largest pools of existing policies among regional insurers, has seen new policy sales lagging behind market growth, eroding its lead over rivals such as Prudential and bank-backed insurers in some markets.

While AIA remains the biggest life insurer in Hong Kong, its largest market, contributing 37% of pretax operating profit in the first half of 2010, it slipped to fifth place in terms of new policy sales in the third quarter, Credit Suisse said in a Jan. 5 report.

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